Northeast

Strategies for Success: Navigating DC’s Turbulent Housing Markets

Jeff Kottmeier

April 6, 2019

Lately, the Washington housing market has had its share of ups and downs. Mortgage rates are fluctuating, and news headlines are shaking buyers’ and builders’ confidence. Despite the turbulence, we believe there are unique real estate opportunities to provide success in the Washington, DC, area.

Focus on the “barbell”: housing opportunities abound targeting the young and old. Over the next five years, the number of 25–44-year-olds and 65+ households will expand in DC.

Take advantage of changing demographics by considering:

Providing Affordable Housing Solutions for Younger Households

  • Less amenitized apartments. Younger “Connector” renters (born in the 1990s) are seeking value, as they have good jobs, but many are saddled with student debt. They don’t have parents’ financial assistance like their 80s-born “Sharer” and 70s “Balancer” counterparts. These younger renters will also consider roommates, so think about appropriate floor plans that include larger shared/common areas.
 
  • Purchase assistance. With a record amount of student debt, younger households struggle to afford a down payment. Think about offering purchase assistance such as bringing in shared equity providers to help fund down payments for entry-level homeowners. Companies such as OWN Home Finance and UNISON offer various assistance programs.
 
  • Ownership alternatives. Build-to-rent single-family communities have addressed housing affordability in other areas of the US. High-density, amenitized communities (like the one below) target affordability. While many builders find DC too expensive for single-family rentals to pencil, consider opportunities in the further suburbs for single-family rental product.
  • Separate living spaces. As land and construction costs climb, it’s harder for builders to offer affordable housing. Separate living spaces—like those in ADUs (accessory dwelling units) or basements—provide additional living space that homeowners can rent for extra income. These spaces can also serve multigenerational households that need private space for adult children or parents.

Housing Products That Attract Active Adults

  • Upscale townhomes, high-density detached homes. Over the next five years, the number of wealthy empty nesters and young professionals is expected to grow. Both buyer groups value proximity to work and community services and prefer living in surban™* and transit-oriented communities.
  • Age-restricted or age-targeted apartments. Age-restricted apartments tend to achieve rental premiums over traditional class A new construction and experience less turnover. The downside that must be considered in underwriting is typically slower lease-up, as these renters are not in a rush to move. Also, older renters need larger units. Recently, several developers that have targeted older renters looked back at their projects and acknowledged they should have had more two- and three-bedroom units.
 
  • Revitalizing underutilized retail. Many older malls, big box stores, and outdated strip retail are near jobs and community services, which are attractive to both active adults and younger professionals without children that do not need large yards. Revitalizing economically distressed retail with quality, higher-density new housing above retail—many times within a smaller footprint—presents a great opportunity for surban™ living.

Here at JBREC, we analyze all types of housing, from traditional for-sale to multifamily and single-family rentals. If you have any questions, please contact us.

*Surban includes a new supply of higher-density homes in high-population areas that meet the demand of commuting less and living closer to restaurants and entertainment. Surban brings the best of urban living to a more affordable suburban environment.

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About The Author

Jeff Kottmeier
Senior Vice President, Consulting
Jeff provides strategic insight and advice for housing throughout the Mid-Atlantic and Northeast with a special emphasis on rental housing.

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